Radio Vs. Internet: Power and Misuse of Information

1878, 1893, 1906, the radio had to overcome serious obstacles and technological advancement before the inaugural broadcast on August 31st 1920. While statistics cannot be confirmed with certainty, it is believed that the global population in 1927 was roughly 2 billion people. By 1923, the radio was setting sales of roughly 100,000 units per month, that number would grow to 5 million units globally by 1927. By the end of 1923 over 3 million Americans had a radio in their household.
At the time the number of radios in circulation consisted of roughly 3 percent of the total population. However that number would rise to over 10% of the population in the span of just 6 years so that by 1929 over 10 million Americans had a radio in their house. Why all these statistics? To put that into perspective, over the course of 9 years the percentage of the American population who had access to fast, reliable information went from roughly 0.0001% of the population, to 10% in less then a generation. Subsequently 1929 bore witness to the worst stock market crash in history, eroding an untold amount of wealth and development in the process.

The Dow Jones Industrial Index as referred to upon its inception in 1896, the American stock market originally had 12 companies listed on it. By 1929 the stock market had risen to a miraculous 381.71 points. Throughout the 1920's the stock market rose steadily mimicking sales of the radio. Whilst it is extremely difficult to confirm definitively, the correlation between the increase of access to information provided by the radio between 1920-1929, and the artificial rise in the value of stocks listed on the exchange cannot be underestimated when analyzing the causes of the stock market crash.

Massive portions of the American, indeed global populations were ill prepared to understand the information to which they seemingly accessed overnight. All to frequently many prospective investors are lured by the promise of "easy money" and flee for a chance at fortune. Whilst all 10 million people who potentially gained access to stock market information via the introduction of the radio did not automatically enter the stock market, it must also be remembered that the regular business practices within the financial industry also contributed to inflated market prices. Occurring in unison with this trend was the natural progression of the dissemination of information through distribution of the radio and other methods which helped promote the benefits of the stock market to members of society who were incapable of properly understanding the risks.

In essence, while many analysts promote the fact that the radio increased access to information for many people around the world and contributed to human development, it must be stressed that access to information in the hands of people who do not possess a proper foundation to process the information can, as history has demonstrated time and again, lead to disaster.

Internet Age

After the Soviet Union had beat the US in the race to space with the launch of Sputnik in 1958, the US created the Information Processing Technology Office (IPTO). The purpose was to design a land based system network of communications in order to regain the technological lead in the arms between the world's two superpowers. Since then the internet has been transformed almost monthly to evolve into its modern form.

Currently there is over 1.1 billion people around the world who use and have access to the internet. Although many of them are from the developed world, the explosion of information technology suggests that by 2020 that number could more then triple. Considering that a vast majority of internet users are supposed members of affluent, functioning democracies in the developed world, the possibility that information becomes increasingly  distorted will rise exponentially as the equivalent information is shared between members of middle America and places such as Sub-Saharan Africa.

Information as King

To clarify, at present less then .001% of the global population is capable of understanding global (even personal) finance on a level that would be considered satisfactory. There can be no justification for the further dispersal of information. This lack of both personal and professional understanding of the fundamental underpinnings of finance is partly (if not fully) responsible for the current state of economic affairs. What other line of work are people allowed to enter with so very little-in some cases no- formal training? Politics? The fact remains that as larger portions of the population gain access to information, the danger for the misuse of that information increases exponentially.

For example, if you were to hand an alien a modern video game, the probability that the alien will correctly deduce what to do with it, let alone be able to effectively engage the game, without formal instructions or guidance, would be minimal. One final comparison that will hopefully shed light on the complexity of the idea that transmitting data and information to people who are unable to receive it, can be found in examples of religious extremism. Extremists supporters are almost exclusively the poor, desolate, uneducated members of third world countries. More often then not, as a result of their inability or lack of access to formal educational training, extremists are left to their own devices to interpret religious principles. As such, they are incapable of understanding (aren't we all) many abstract concepts that religious dogma incorporate into the belief system. Instead of understanding simple literary techniques such metaphors or alliteration to interpret scripture and religious writings, the messages are internalized literally. Information that is transmitted to those without the fundamental education to receive is, in a word, dangerous.

Weapons of Mass Destruction

The first demonstration of the problems associated with people accessing modern information and putting it to poor use can be seen in the causality of the .com bubble in 2000. A wave of amateur investors were lured into the market under the false premise of fast money. Quick wealth and fortune involving minimum risk. Without understanding simple market or economic forces, these investors started slowly placing bigger bets on a pre-infant industry. As a result of the technology sector's explosive growth, the industry got way ahead of itself as speculators artificially boosted the value of these technology stocks. In some cases .com companies who had less then 1 year of revenue were trading on par with companies who had been in business for years. The bubble was ready to pop. The tsunami of venture capitalists who thought they knew everything, quickly ran into the same difficulties that investors of the 1920s ran into, namely that information alone is worthless without the fundamental tools to properly process it.

Unfortunately, the explosion of internet users continued and the educational shortcomings demonstrated during the .com bubble were lost. As more and more people gained informal knowledge of the stock market and finance, too many people were once again lured into a situation they were incapable of understanding. And so, not even 10 years after the .com bubble, another market bubble was created. Instead of taking the time to understand the system, amateur investors were blinded with the promise of fast money. As everything from stocks to real estate to commodities demonstrated over average ROIs, all became over valued, knowledgeable investors knew it was time to sell.

No Where to Run

Market fundamentals had got ahead of themselves, except this time, as the exposure and access to the internet increased and dispersed non-credible knowledge to incapable wielders, the fallout crushed the entire system. Millions of people were directly affected by the stock market crash, and millions more became indirect targets of a financial system that had become impotent, left to its own devices, the market was no longer capable of governing itself.

Many amateur investors, pension and 401K contributors, speculative traders and financiers cried foul, begging governments around the world to stand up and do something. Whilst these financial institutions do bare some responsibility, they only offered a product. Had the purchaser (of which there were millions) had even minute knowledge of simple financial concepts, big banks and investment institutions would never have been able to sell 1 NINJA mortgage, 1 COD or any toxic products. The market for financial products would have changed and forced these players to develop quality products that would have large financial appeal.  

Instead we, a lazy, backward, intellectually impotent society let them off the hook. Our daily desire to indulge in forms of mentally debilitating entertainment, instead of equipping ourselves with the knowledge necessary to protect and fight for our financial future is the real culprit behind the recent recession. For everyday that passed where we indulged in anything but bettering our understanding of the information that was being thrown at us, was another day we let these financial institutions monopolize information. The only reason why we find ourselves in the current economic situation is because we as a society are loosing the war of information by engaging in complacent, negligent behavior. Its a hard truth to face, but any other analysis will lead to the same conclusion.

The Moral of.....

The original argument for implementation of a stock market is simple. It was the best known device capable of resource allocation with the most effective precision. In theory, there is no better method to deliver goods from producers to users then a stock market. In the modern age, this premise is no longer the case as governments are forced, time and again, to fill a void of resource allocation that is left in the wake of market deficiencies.

The dispersion of information from both the Radio and the Internet have disturbing parallels which ended in the 1st and 2nd ranked economic disasters on record. This similarity cannot be underestimated when analyzing how to avoid similar economic downfalls in the future.

Currently there is 1.1 billion people using the internet and that number is expected to grow exponentially as the global population increases, internet technologies are upgraded, internet infrastructure expands and new people gain access to information that they too will be incapable of processing. As countries continue to develop economically, their populations will demand access to affordable telecommunications technology that will provide them with access to information in ways that we, at present, can only dream of.

It is up to the average person to take it upon themselves to become knowledgeable of the financial tools available to them and regain control of our societal preoperative to be guardians of future economic prosperity.

"Once we realize that imperfect understanding is the human condition, there is no shame in being wrong, only in failing to correct our mistakes "
George Soros

SPECIAL REPORT: China's Five Year Plan, In Depth Analysis

Very exciting times. Over the weekend the Communist Leaders of China unanimously passed China's new five year policy (FYP). A document that outlines the country's trajectory for the next 5 years, it was sent to the National People's Congress for debate on Saturday. The plan outlines significant economic changes that have caught the attention of the international community. When the world's second largest economy details plans for a 12.5% upgrade in military spending, an environmental 180 and a significant economic shift; the world better take notice. Based on the Soviet model for detailing government policy, the FYP is an ambitious shift for the world's most populous country.

CHINA GOING GREEN?


Not quite. It has long been known that China is the world's largest polluter.  Emitting a little over 22% of the global CO2 emissions, China emits more CO2 then the world's 150 least polluting countries; or put a different way,  China emits roughly the same amount of CO2 as (4) Russia, (3) India,(7) Canada,(6)) Germany,(8) U.K,(9) South Korea combined! As a result of China's seemingly limitless expansion, the International Atomic Energy Association suggested back in July that unless China can cap its environmental emissions and degradation by 2050, there will be no point for any other country to cut them.

The environmental shift detailed in the FYP is a move in the right direction, however it would be much to early to award China  'Greenpeacer of the year'. As China seeks to continue its overly impressive economic growth, government economists have suggested that the Chinese economy move into a more sophisticated direction. Historically the world's factory, Chinese officials believe it is time for a shift that will be key to further economic expansion as the economy is introduced to the idea of 'value added' goods. Put simply, value added goods are products which add more value through developing a longer cycle of production.  The Green Revolution provides the Chinese with that opportunity to capitalize on a new era of technological evolution in almost every sector.

An environmental shift in Chinese policy follows the overarching perspective of keeping social instability at a minimum. After all, what good is economic opportunity and personal development, if your not healthy enough to capitalize on it?

Dont Be Fooled

Ever since the devastating failure of the 'Great Leap Forward' proposed by Chairman Mao in 1958 which saw the death of between 20-48 million Chinese citizens, successive Governments have pursued a concerted policy effort that demands the economy grow at an annualized rate of 7%. The reasoning for this seemingly large target is simple, achieve a growth rate of 7% per year, or risk massive social unrest, instability and chaos.

So when the Chinese FYP stated that the economic goal is to achieve annual growth of 7% between 2011-2015, it should not be taken out of context. Furthermore, the Chinese Government routinely underestimates growth trajectories to appease and ensure public contentedness when releasing economic data that demonstrates an increase into the 9-11% percent growth range. This tactic is not relegated to simply the Chinese.

Even more disturbing for the global economic order, the new plan details an important economic shift. The shift from a manufacturing based economy to one predicated on consumption. This change has garnered the attention of eyes and ears of policy makers from around the world. China has already surpassed the US as the world's largest car maker. Imagine that even 1/10th of the Chinese population consumed the same amount of the top 20% of Americans? That would be an additional 160 million Chinese purchasing TVs, Ipads, Laptops, cell phones, guzzling more gas and eating more McDonald's. Sure, music to the ears of the corporate China and corporate America. A consuming China would also indisputably help re-shift the massive trade imbalance with the US. According to new economic date from China's main news source, the Chinese are expected to surpass the Japanese as the world's largest consumer of high-end products by 2015.
Can anything stand in the way of this Juggernaut? It seems it was just yesterday the Chinese surpassed the Germans as the world's 3rd largest economy and second largest automaker.

In order for the Chinese populous to consume more, history teaches us, that some across the globe will inevitably be forced to consume less and the primary target for a consumption downgrade is the US. If the FYP is to succeed such a policy will inevitably lead a course toward economic tensions between the world's two superpowers.


Put Your Money Where Your Mouth Is

Unlike decades past, the Chinese have never possessed the ability to back up its political or economic rhetoric. But that may change with the recent announcement that China will increase military spending by 12.5% this year. Defending the increase to 91.5 billion USD (although most experts suggest the actual number could easily be double or triple that), Chinese officials tired to assure the global community that the increase is solely to maintain stability. In support of this the Chinese acknowledge that a 40% increase for the world's largest army (2.1 million standing soldiers) will be in order. To down play the double digit rise, similar increases in the administrative, logistics and R&D budgets were supported. Granted the budget is not remotely close to the Pentagon's $533 Billion USD for 2011. But actions speak louder then words. The inaugural test flight of a stealth fighter jet earlier this month when Secretary of State Robert Gates visited China tells a different story.

As a result of the explosive economic growth, China has become less appeasing with her Asian neighbors. Japan has outwardly expressed concerns over any Chinese military or naval build up and has put the global community on alert that any further military increase on the behalf of the Chinese will be met with a similar build up on the part of the Japanese. An all Asian arms race has been a cause for concern in strategic circles and the recent budget expansion only furthers this possibility. Further tensions between the Chinese and Japanese will evolve when the Chinese dispatch their first aircraft carrier which will be anchored in the East China Sea, a body of water that divides the Japanese islands and Chinese homeland.

Any time the Chinese have attempted to expand even minute spheres of influence, the US navy was on the scene instantly to remind them who's backyard they are digging in. After all, since the fall of the Berlin Wall the entire globe has been under the influence of the US Navy.Recent examples include, Vietnam, Desert Storm, and the War On Terrorism. That could change in the next few years as China is set to commission it's first Aircraft Carrier. This is no small  feat. Aside from engineering and technological expertise, an aircraft carrier requires experienced naval personnel. The Chinese have purchased the former from the Russians and have employed the expertise of the Brazilians for the latter.

For those of you who believe the aircraft carrier is simply another boat in the naval arsenal consider the following. The US is the only country in the world to commission a Nimitz Class aircraft carrier. This nuclear powered behemoth, aptly titled 'supercarrier', displaces 100,000 tons of water, can reach speeds of 30 knots (56 KM/H), costs roughly 4.5 billion per and at a length of 1033 feet is the largest naval ship ever commissioned. The US navy has 10 of these engineering marvels in service, no other country has one. The technologies used in the design of these titans are a more closely guarded state secret then the nuclear launch codes.

Simply put, when an aircraft carrier is set to sea (above) it is surrounded by a superlative arsenal of submarines, destroyers, battleships and air-power. Aircraft carriers are considered the 'heart of the navy' for a reason. If they are sent anywhere, it is message to everyone that the navy is on the scene. The purpose of building and maintaining a navy (aside from the obvious) can be summed up in a word. INFLUENCE. With the creation of China's first carrier, it is also sending a message, it has ambitions to exert more influence at the international level.

Let the Games Begin

China's FYP may change 5 years from today. China may encounter different problems which require different solutions. The current FYP has raised alarm bells across the globe. The sole reason for these alarm bells is the result of a threat to the status quo. Every empire has it challenges. It should therefore not come as a surprise to anyone that the United States is taking the FYP so seriously. After all, America was never expected to sustain an empire with the endurance and scope as Rome.......Was it?

Globalization's Paradox: Creating Democracy in Libya and Beyond

Democracy is a great idea, in theory. But any great idea is predicated on the ability of its major proponents to institute the theoretical into the practical. This is currently the situation in parts of Africa and the Middle East, at the moment certain countries across the region believe that democracy will bring salvation. Believers in this idea argue that democracy will be the vehicle through which a new era of prosperity will emerge. Democracy they profess, will progress their country into the 21st century. It wont.

History of Democratic Reform

The idea of 'Self determination' was first proposed in Paris 1919, at the peace conference that cemented the end to World War One. In essence it refers to the idea that countries have the right to determine their method of governance and sovereignty- free from external influence- as they see fit.
People across the world believe that countries like Libya to be advocating this notion at present. Unfortunately this belief is misplaced. Any revolution invariably has elements of self-determination. This is not the situation unfolding across Asia minor and parts of northern Africa.
All to frequently many analyst and on lookers mistake democratic revolution with the benefits of capitalism. The difference is clear, the former a political ideology whilst the latter is an economic system. The two paradigms currently co-exist in most of the prosperous and developed countries of the world,  and as a result it is easy to become susceptible to the idea that with one, automatically comes the other. But it should be noted that each system is distinct and exists separately from the other. The American template of a capitalistic-democracy varies greatly from the Canadian hybrid model, which varies distinctly from the systems seen in the UK, Germany or Japan.

An international effort to bring capitalism and democracy to the former Soviet Union after the fall of the Berlin wall ended a dismal failure. The results were disastrous, the message clear. Capitalism cannot be introduced into a country that has no prior entrepreneurial experience.  In order for a country to evolve into a functioning capitalistic society, at bare minimum, the population must be minutely aware of basic entrepreneurial concepts. After 40 years of autocratic rule by Muammar Gaddafi, Libya is ill-equipped, unprepared and incapable of transforming it's pseudo fascist economy. Capitalism cannot be forced upon a population that has yet to identify with any formal experience associated with this economic model.
Democracy on the other hand is predicated on voting public's ability to understand political ideas. In the absence of a politically educated populous, democracy in most instances, becomes less functional then dictatorship. People need, at very least, to be remotely aware of simple political processes. In the event that an uneducated voting public engages democracy prematurely, the possibility can lead directly to a quasi-feudal state, where there are multiple factions, vying for pieces of fractional power, using charismatic means to gain support. Historically, this situation devastates the legislative process-even more so then if a dictator simply enforced stability- to the point at which the government doesn't just become ineffective, it becomes stagnant and unable to contribute to the progression of society.

Timing is Everything, Whats at Stake

In a few years, possibly a few decades, these countries (and others that will follow in their revolutionary footsteps) may finally realize the benefits of the political struggle.  In the interim, while these countries figure out how to create a functioning society, tailored to their own needs, the possibility that social instability, unemployment and chaos will spread- increases exponentially. A country looking to reinvent itself will seek new allies and new partners amongst the international community. The current international system is undergoing a wave of change and it is unlikely that post-revolution Libya will find the support necessary to finally join the international economic order in any meaningful sense, aside from demand for its oil wells.
Much more importantly for Libya, is the question of where new leadership will come from. After 40 years of dictatorial rule, the Libyan populous has no formal political or legal experience. Unlike other democratic models, Libyans have no experience running a bureaucracy, few if any qualified judges who can comprise a legitimate supreme court, and little to no experience analyzing and creating legislation.  A quick transformation to a functioning federal or national government is necessary in Libya to avert civil war. The possibility of civil war in Libya increases for each day a legitimate government is not in place. Libya is extremely fragile and ripe for more conflict as proponents of Gaddafi's old regime will dual with revolutionaries expecting sweeping change.

External Forces

Normally, revolt in nations such as Libya would not garner international attention. However, the growing fear- which was realized by investors this past week- is that the revolutionary fever could spread to much more significant economic players on the international scene. Libya  produces 2% of the world's oil supply, the sheer fear of those taps being turned off-even temporarily- led to a 300 point dip in the stock market in New York last week. Similar drops were felt in most countries with sophisticated financial institutions.
The global economic recovery is extremely fragile. The world can ill-afford any regression in economic performance or progress at this junction. The reasons are simple, the consequences profound. Governments have no alternative left, Federal Banks are out of options, Interests rates across the world can go no lower. There will be no money to throw at an economic regression this time, if the global recovery fails, modern civilization could face a dire future.

Consequences of Revolt

The UN and nation specific sanctions placed on Gaddafi and Libya over the weekend have been misinterpreted as support on behalf of the international community. In fact, the sanctions and calls from the international criminal court for crimes against humanity are the exact opposite.

From an international perspective, there can be no more revolutions. At least not in oil producing countries. Egypt was allowed a free pass as their major contribution to the international community is overseer of the Suez Canal. Libya has oil. The message to prospective revolutionaries and current regimes is clear. Maintain the status quo until the global economy is back on its feet, or suffer the consequences. Gaddafi and his family have seen there international finances frozen (lost forever). If he survives the onslaught from revolutionaries he will surely be made an example of at the international criminal court, if he does not,  its not hard to imagine what a populous that has suffered 40 years repression will do. Furthermore, which ever leadership emerges in Libya will be at a significant disadvantage.
Aside from supporting UN sanctions, the Canadian government has forced all Canadian companies working with or in Libya to seize all transactions with the Federal Bank and the Government of Libya. Suncor has been shut out-temporarily- of its 3 billion dollar oil investment in Libya, as has SNC Lavalin, who had a number of outstanding contracts in Libya. The companies are allowed to continue commercial operations. It is very likely that any further planned investment in Libya from other multinationals will be cancelled until a legitimate stable political environment emerges. Without foreign investment, the new Libyan regime will be hard pressed to get the economy up and running and will be hard pressed to employ the vast peoples affected by the revolution. Without a functioning economy or foreign investment the country will be fraught with unemployment, drain any federal reserves and possibly revert to chaos.
If the goal of the international community was to aide in the development of democratic change in Libya, sanctions would have been imposed solely on Gaddafi and not on the country. The sanctions would also have been instituted within hours, at very least a day or two after the uprising began, not moments before its conclusion.

Long Term Outlook

Now, at the exact moment when global economic morale is incapable of dealing with any regression, the fate of contemporary development hinges on the trajectory of a few. This is it. If further revolutions lead to a significant fluctuation in the price of oil and oil remains artificially high for any period of time, the global recovery will fail. If the recovery fails, millions of people worldwide will find themselves unemployed.  Globalization has been the key driver through which the international economy has been able to grow over the course of the last two decades. During this process of interlocking and aligning national economies; nations have lost the ability and economic independence to isolate themselves from external disruptions and fluctuations. The Egyptian, now Libyan revolutions have provided the world a glimpse of what is to come if revolutionary sentiment spirals out of control into other, more significant international players.